Hey, let’s put on a Private Sector!

SCMP:

The People’s Bank of China (PBOC) announced on September 30 that it would cut the required reserve ratio, or the amount of money it requires banks to keep at the central bank, for banks that met the requirements to lend to small businesses and the agricultural sector. These banks have three months to work on their target customers before the reserve cut takes effect from 2018.

The selective cut, Tao said, was an innovative monetary policy that intends to steer liquidity into the real economy, particularly providing funds for private firms and start-ups, instead of financial speculative sectors.

Easier credit aside, Beijing has also tried to reassured its support to businessmen in an unprecedented directive that stresses guidance and protection over entrepreneurship on September 25.

The directive for the first time raised the idea of setting up a mechanism to “compensate the losses of entrepreneurs due to changes in government planning or policies”, in addition to the usual promises to protect their properties, legitimate rights, and ensure fair market competition.

China’s private sector has had a lacklustre year, even though overall economic growth in the country is beating expectations of foreign investors on the back of a strong profit rebound by state-owned enterprises (SOEs). Year-on-year industrial profit growth of SOEs rose 44.2 per cent for the first seven months, while growth of privately-owned enterprises (POEs) was at 14.2 per cent.

“We can see SOEs, which dominate the upstream industries largely benefiting from the rebound of commodities’ prices, while factories of POEs are closed down as the authority pushes for capacity reduction or environmental protection,” Tao said.

What’s more, private companies and their investments have been scrutinised by intrusive state agencies in the past year, often leaving them with no available recourse but to give up the market to SOEs.

To thrive, an increasing number of private companies have looked abroad for opportunities in the recent years. But their overseas ambitions have hit a wall since late 2016 when Beijing began to curb capital outflows.

Reminds us of the movie. We’ll have to see how real it is.

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